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China Inflation January 2020

China: Inflation surges in January due to Chinese New Year holidays and coronavirus outbreak

Consumer prices rose 1.4% over the previous month in January, well above December’s flat reading. The print mostly reflected a surge in food prices due to disruptions related to the Chinese New Year holidays and shortage of pork supply.

Inflation jumped from December’s 4.5% to 5.4% in January. The print was above market analysts’ expectations of 4.9% and the strongest result in over eight years. Annual average inflation rose from 2.9% in December to 3.2% in January.

Annual producer prices (PPI), meanwhile, rose 0.1% year-on-year in January. The print contrasted the 0.5% drop in December and was above the flat reading that market analysts had expected.

Yi David Wang, head of China economics at Credit Suisse, comments that the outbreak of the coronavirus also played a role in January’s inflation reading:

“Service disruption from coronavirus containment contributed to the spike in food prices. But the decline in broader domestic demand means that services and core inflation remained weak. The coronavirus outbreak may keep CPI inflation above 4.5%yoy in 2020H1 due to transport disruptions and supply shocks from lockdowns. Even after the coronavirus is contained, it may still take time for the supply to recover. […] The rise in PPI inflation in January is mainly due to a low comparison base even the global oil prices have fallen 6.0%yoy in January. We expect that PPI inflation is poised to decline again in the coming months. We also expect the authorities to mitigate the negative impact from coronavirus outbreak with policy support, both monetary and fiscal.”

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